Junk Bonds Keep Cruising: Up 1% In May, 4.75% In 2014 To Date

By Michael Aneiro

Junk bonds turned in yet another improbably strong month in May, with the market gaining 1.007%, per a benchmark Bank of America Merrill Lynch index. The high-yield market has now returned 4.754% already in 2014 to date, even though the average junk bond’s annual yield stood at just 6.2% at the start of the year and the year is only 5 months old. I’ve written at great, fatigue-inducing length about how overvalued the junk-bond market looks right now, but as long as the Federal Reserve keeps buying bonds and holding down interest rates and encouraging investors to buy riskier, higher-yielding investments, there really might not be any such thing as overvaluation anymore. Whenever the Fed starts pulling up stakes, watch out.

Checking on some other current market metrics: the average junk bond now yields a mere 5.067%, within a whisker of the 4.96% all-time low seen in May 2013, at an average spread of 367 basis points over comparable Treasury bond yields, which is still a decent distance from the 240 record low seen in June 2007 when Treasury yields were much higher. The average junk bond trades at 105.4 cents on the dollar, not far from the 107-cent record level seen in May 2013.

Checking in on the big high-yield bond exchange-traded funds, the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) is currently trading down 16 cents Monday at $94.46, and is up 2.16% year to date. The SPDR Barclays Capital High Yield Bond ETF (JNK) is down 3 cents at $41.30 and is up 2.47% year to date.

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